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Analysts anticipate news on Lucent changes

The company is expected to detail the progress of its restructuring and tout its improvement during its meeting with analysts Thursday.

Lucent Technologies' analyst meeting Thursday is expected to be relatively upbeat, quite a change of pace for the struggling telecom equipment maker.

Analysts predict the company will detail the progress of its restructuring and tout its improvement in the optical market.

Lucent shares were up 6 cents to $6.51 Tuesday as Wall Street mulled over expectations about the analyst meeting, and the results of a recent study showing the company has displaced Nortel Networks as the leader in optical equipment during the second quarter.

The stock has been battered this year as the telecommunications spending slump has deepened. The tough climate has led the company to have more layoffs in an attempt to stem expenses, and increase the size of a recent convertible preferred stock offering to $1.75 billion from $1 billion in order to raise more funding.

Analysts expect the company to announce that its belt-tightening regimen is starting to pay off, and to say it's ready for the next phase in its restructuring process.

The first phase of restructuring included the sale of Lucent's Optical Fiber Solutions business to Furukawa Electric and Corning for $2.75 billion and a partial spinoff of Agere Systems. The company has been shearing off assets as it focuses on two key businesses: mobile technology and integrated network solutions.

"The main areas of focus for the investment community will be getting a handle on future probability through analysis of gross margin and operating expenses," wrote UBS Warburg analyst Nikos Theodosopoulos in a Tuesday research note.

Considering the recent spate of layoffs and forced early retirements, Theodosopoulos calculates the company should have saved $600 million to $1 billion through recent cost-cutting measures. The company had already reduced estimates by $433 million in its recent third quarter.

Lucent Technologies
Stock price from August 2000 to present.  
Source: Prophet Finance
First Union Securities analyst Stephen Koffler speculated in a phone interview Tuesday that the company on Thursday will "mostly talk about how they're doing with cash flow," but he doubts management will make any change to its estimates.

First Call expects the company to lose 21 cents a share in its fourth quarter.

Another thing analysts are expecting from Thursday's meeting is "the outlook for Lucent's CDMA wireless business, given recent trends in China and the uncertainty of NextWave licenses," Theodosopoulos said.

Though the company's CDMA business has been doing well since Unicom launched in China, the analyst noted that the decision by private communications company NextWave Telecom about whether to build out its network based on the technology is a "major wildcard" for Lucent.

Analysts expect the company to highlight its improved position in the optical market--a point that a recent report from the Dell'Oro Group brought to light.

The research company's report showed that while overall spending on optical goods was off 16 percent in the second calendar quarter, Lucent managed to increase its market share to 21 percent from 15 percent in the first quarter.

Sanford C. Bernstein analyst Paul Sagawa praised Lucent's performance, especially relative to Nortel's "disastrous" quarter, in which its optical sales fell 54 percent sequentially. Cisco Systems also saw a downturn in optical revenue, which fell 11 percent sequentially, Sagawa noted.

Morgan Stanley analyst Alkesh Shah didn't comment on the upcoming meeting, but advised in a research note Tuesday that investors buy Lucent. The company's historic lows have been between $4 and $6 a share, and its fair value is $11 a share, according to his metrics.

Shah said a look at the company's 8-K filing Aug. 16 showed Lucent has made changes to its credit facilities, which should allow it to embark on phase two of its restructuring.

"We view the amendment as largely positive," wrote Shah, who said a second phase of restructuring should put the company on track to profitability during the second half of 2002.

First Call predicts the company won't be profitable until the first quarter of 2003, with earnings of a nickel a share.